Mining is crucial for the Australian economy, accounting for around 10 percent of GDP and three-quarters of goods exports. Over 600 mining companies make up over 20 per cent of the ASX, ranging from the iron ore giant BHP, to lithium players and at the other end, riskier junior exploration companies.
Two key macro factors that shape the relative performance of mining companies are commodity prices and the economic cycles of our major trading partners. The top three miners on the ASX are household names: BHP, Rio Tinto and Fortescue.
Why invest in miners
There is longevity to investing in mining in Australia: the country has a deep history of coal, gold and iron ore, and more recently, minerals such as lithium and rare earths. The demand for all of Australia’s resources has evolved over time, both domestically and internationally.
Demand for metals and minerals moves with cycles and trends, but in many ways is constant. Physical gold will continue to be a store of wealth, modern economies need steel, and right now, we still need oil and gas to fuel growth. Looking ahead, there are other battery metals that investors are looking for, such as lithium, nickel, cobalt, graphite and copper. Australia is also a producer of uranium.
What do investors need to focus on?
As our single biggest export is iron ore to China, we talk a lot about iron ore here on ausbiz, closely followed by gold, oil and coal. Copper, which is used in everything from homes to factories, is also a good gauge of overall global demand.
Some mining companies are focused on one or two commodities, others are “diversified” miners.
The weak link? Mining is highly cyclical. Even with megatrends like the urbanisation of China or the electrification of the economy, there will be periods of correction for various reasons. Stay tuned to ausbiz to find out when and why.
Not all mining companies are big names with deep pockets. There are also smaller and riskier small caps (junior miners at the exploration level in particular) that could expand, be acquired by a bigger fish, or could collapse.
Mining on ausbiz
We speak with Australia's top fund managers, stock pickers and commodities analysts to give ausbiz investors unique insights into the performance of our mining companies. We also speak with CEOs of mining companies of all sizes and stripes.
Not a day goes by where we don’t discuss mining and commodity prices, the latest mining news, and why it matters for investment strategy and asset allocation.
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